Azerbaijan's Stock Market: Does It Exist?

Azerbaijan has a stock market, with the Baku Stock Exchange (BSE) being the country's main stock exchange. The BSE is organized as a closed joint-stock company with 19 shareholders and is regulated by the Financial Markets Supervisor Authority. The BSE trades short-term treasury bonds, common stocks, and foreign currency futures, with a focus on former state-owned enterprises in sectors like food and beverage, construction, and banking. The stock market in Azerbaijan is experiencing natural growth, and the country's securities market is seen as having significant potential by industry experts.

Baku Stock Exchange (BSE)

The Baku Stock Exchange (BSE) is the main stock exchange in Azerbaijan and has been the sole stock exchange operator in the country since 2000. It is organized as a closed joint-stock company with 19 shareholders. The BSE trades short-term treasury bonds, common stocks, and foreign currency futures. The common stocks traded on the BSE are primarily from former state-owned enterprises that have been privatized, including companies in the food and beverage, construction, and banking sectors.

The Baku Stock Exchange also trades corporate securities and government securities. Trading on the primary and secondary markets of government securities (T-bills of the Ministry of Finance of Azerbaijan and banknotes of the Central Bank of Azerbaijan) is carried out solely at the BSE. The state regulatory authority for the stock exchange and the Azerbaijani securities market is the Financial Markets Supervisor Authority. The activity of the BSE is regulated by the Civil Code of Azerbaijan, the normative-legal acts of the State Committee for Securities of Azerbaijan, and the internal rules of the BSE.

The Baku Stock Exchange began its operations on February 15, 2000, and the first trading operation was carried out on September 1, 2000. Corporate bonds started to be traded on the BSE in January 2004, and the first equity trade took place in April 2004. The Central Bank began trading its Notes on the BSE on September 14, 2004, and the Azerbaijan Mortgage Fund started trading its bonds on the exchange in June 2009. The BSE has continued to expand its offerings and improve its trading systems over the years.

The normal trading sessions on the Baku Stock Exchange are from 10:00 a.m. to 1:00 p.m. and from 2:00 p.m. to 4:30 p.m. (local time, UTC+4) from Monday to Friday. The exchange is closed on Saturdays, Sundays, and official non-working days declared by the government for public holidays.

Azerbaijan's securities market

Azerbaijan does have a securities market, with the Baku Stock Exchange (BSE) as its main stock exchange. The BSE is organized as a closed joint-stock company with 19 shareholders. It trades short-term treasury bonds, common stocks (mostly from former state-owned enterprises that have been privatized), and foreign currency futures. The BSE also trades corporate securities and government securities, such as T-bills from the Ministry of Finance and banknotes from the Central Bank of Azerbaijan.

The BSE's activity is regulated by various legislative acts and documents, including the Civil Code of Azerbaijan, the normative-legal acts of the State Committee for Securities of Azerbaijan, and its internal rules. The state regulatory authority for the BSE and the Azerbaijani securities market is the Financial Markets Supervisor Authority.

The BSE began its operations on February 15, 2000, and the first trading operation took place on September 1, 2000. Corporate bonds started trading on the BSE in January 2004, and the first equity trade was executed in April 2004.

In recent years, there has been a strategic entry of a global online trading powerhouse, CFI Financial Group, into Azerbaijan's securities market. This move is expected to introduce globally recognized online trading services to the country.

Foreign investment

Azerbaijan has been working to attract foreign investment and improve its overall investment climate. The country's economy is heavily reliant on oil and gas production, which has historically drawn the largest share of foreign investment. However, the Azerbaijani government has been taking steps to diversify its economy away from hydrocarbons and has identified four non-oil sectors as priorities for foreign investment: agriculture, tourism, information and communications technology (ICT), and transportation/logistics.

The government has implemented several measures to improve the business climate and stimulate economic growth, including simplifying customs procedures, suspending certain business inspections, and reforming the tax regime. Foreign investments in Azerbaijan are protected by comprehensive legal safeguards, and the country has signed numerous bilateral investment treaties. Foreign companies can establish a presence in Azerbaijan through various avenues, including setting up wholly-owned subsidiaries or forming joint ventures with local partners.

Despite these efforts, Azerbaijan still faces significant challenges, including a fragile banking system, high regional political instability, and a weak private sector credit market. Corruption and intellectual property rights enforcement remain issues, hindering foreign investment and local entrepreneurship. Additionally, the country's heavy dependence on the oil and gas sector creates substantial external vulnerability, and there is a limited non-oil sector.

Azerbaijan has significant wind and solar potential, and the government is working to expand its renewables sector. By 2030, the country plans to install 1500 MW in renewables capacity, with the goal of exporting green electricity and green hydrogen to European markets. This shift towards renewable energy and the development of north-south and east-west trade corridors are expected to make the country an attractive destination for foreign investment.

The role of oil and gas

Azerbaijan is a country rich in oil and natural gas resources. Oil and gas are the main drivers of the country's economy, accounting for 47.8% of its GDP and over 92.5% of export revenue in 2022. Azerbaijan's economy is heavily dependent on the oil and gas sector, which has been the main driver of economic growth and development.

The history of Azerbaijan is closely tied to its oil and gas industry, with the first reliable information about oil extraction in the Absheron Peninsula, where the capital city of Baku is located, dating back to the 7th and 8th centuries. By the end of the 19th century, the growing demand for oil transformed the industry into a significant capital production sector, attracting substantial investments and leading to the construction of new factories and plants. Baku became a centre of world oil commerce, producing 50% of the world's oil at the turn of the 20th century.

Following its independence from the Soviet Union in 1991, Azerbaijan focused on developing its oil and gas sector as the primary engine of its economy. The country has abundant energy resources, with the Azeri-Chirag-Deepwater Gunashli (ACG) field in the Caspian Basin being its largest oil field. This field was discovered in the early 1970s and consists of a series of individual reservoir horizons located 2,000 to 3,500 metres beneath the Caspian seabed.

Azerbaijan has an estimated 2.5 trillion cubic metres of proven natural gas reserves, according to the BP Statistical Review of World Energy 2021. While the country is more prominent in global oil markets, natural gas extraction is expected to significantly contribute to its economy in the coming decades. Oil and gas interconnections are vital for Azerbaijan's economy, with three major pipelines connecting the country to its neighbours and European markets. The Baku-Tbilisi-Ceyhan (BTC) pipeline is the main route for exporting Azerbaijani oil, accounting for about 80% of the country's oil exports.

The country's energy mix is heavily concentrated in fossil fuels, with oil and gas accounting for more than 98% of the total supply. While supply security is not a significant concern, the heavy reliance on fossil fuels has environmental implications and exposes Azerbaijan to fuel price fluctuation risks. The government has recognised the need for diversification and is working to expand its renewable energy sector. By 2030, Azerbaijan aims to install 1,500 MW of renewable energy capacity to support the future export of green electricity and green hydrogen to European markets.

The impact of the 2015 crisis

Azerbaijan's economy was impacted by the 2015 crisis, which was caused by a combination of factors including low world oil prices from 2014 to 2016, leading to a decline in oil activity, which accounted for about three-quarters of the country's GDP and government income. This resulted in two currency devaluations in 2015, with the manat losing 32% of its value against the dollar, high inflation in the following years, and the closure of several banks.

The government's response to the crisis included tightening monetary policy to curb inflation and supporting the currency. Fiscal policy was slightly relaxed to allow for more spending to stimulate growth and protect vulnerable populations. The government also addressed the high incidence of non-performing loans, closing a number of non-viable banks.

The crisis also prompted the government to initiate a program to diversify the economy away from its dependence on oil and gas, which were directly responsible for 44% of Azerbaijan's GDP and more than 90% of exports in 2018. The government targeted sectors such as agriculture, regional transportation, tourism, and information/communication technology (ICT) for development, offering heavy subsidies for machinery and agricultural inputs. Additionally, projects were launched to develop trade and transit corridors, turning the Port of Alat and the adjacent Free Trade Zone (FTZ) into regional logistics hubs. To promote tourism, the government waived visa requirements for several countries and simplified the visa application process for US citizens.

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